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Hello Professor Farhat, I have a question with the provision example you went over at 17:35. If suppose the problem stated that the amount of the lawsuit was not equally likely, would the computation be as follows? $1,000,000*60%= $600,000 $1,500,000*60%=$900,000= $1,500,000. Journal entry being Dr. Litigation loss $1,500,000 Cr. Provision for litgation loss $1,500,000 under IFRS?
If the problem states that the amount of the lawsuit is "not equally likely" then it should automatically present certain percentages on the range given i.e. (1,000,000 is 20% and 1,500,000 is 80%) The weighting of these amounts are done. And if this is not the case (the certain percentages aren't given) The problem will state that there is a "best estimated amount" and if that is present, no need to compute for anything. IAS 37 states that the best estimate is the one used to accrue or disclose(if the amount is available).
And to add. Accrual is only done for "provisions" because the amount can be reliably measured and there is 50% or more likelihood of it occuring. Whilst disclosure is done to contingent asset and contingent liabilities because such are probable but amount cannot be measured reliably or vice versa.
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You will book the difference as a loss in the period it occurred. Check my intermediate accounting resources: farhatlectures.pathwright.com/library/by/category/intermediate-accounting/
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You make it clear 🙏🏻🙏🏻 thank you for sharing your knowledge jzak allah kher
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This is really amazing content and very clear explanation. Thank you so much.
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Thanks a lot. I've learned something from you. Please continue to make videos. God bless 😇❤
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Very helpful 😊
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Hello Professor Farhat, I have a question with the provision example you went over at 17:35. If suppose the problem stated that the amount of the lawsuit was not equally likely, would the computation be as follows? $1,000,000*60%= $600,000 $1,500,000*60%=$900,000= $1,500,000. Journal entry being Dr. Litigation loss $1,500,000 Cr. Provision for litgation loss $1,500,000 under IFRS?
If the problem states that the amount of the lawsuit is "not equally likely" then it should automatically present certain percentages on the range given i.e. (1,000,000 is 20% and 1,500,000 is 80%) The weighting of these amounts are done. And if this is not the case (the certain percentages aren't given) The problem will state that there is a "best estimated amount" and if that is present, no need to compute for anything. IAS 37 states that the best estimate is the one used to accrue or disclose(if the amount is available).
And to add. Accrual is only done for "provisions" because the amount can be reliably measured and there is 50% or more likelihood of it occuring. Whilst disclosure is done to contingent asset and contingent liabilities because such are probable but amount cannot be measured reliably or vice versa.
Perfect
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Hi Farhat,
What if the legal settlement is more than the provision estimate? For example, $4million rather than $1.25mil
You will book the difference as a loss in the period it occurred. Check my intermediate accounting resources: farhatlectures.pathwright.com/library/by/category/intermediate-accounting/
thank you for your clear explanation!!
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🙌🏻 thank you so much for making these videos!
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@@AccountingLectures Hello sir please I have a something to tell you?
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JUST GET INTO THE POINT. WE DONT WANT TO HEAR YOUR PROMOTION
Great video, I really like your course, clear and precise
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